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Lord McCarthy: My Lords, I am not alarmed by the answer but just a little concerned. The word "partial" was used. That may mean "not complete; only half there". I would not be happy with that because one might say, "It's partial so I am sorry you got nothing on Clauses 25, 31 and 33. It's partial, you see." I would not be happy with that.

The word "interim" would be all right. One might say, "We are writing things in in pencil because we have a consultation process and you may persuade us to do things a little differently.". However, the Minister did not say—

Lord Sainsbury of Turville: My Lords, I explained what I meant by "partial". I hope that I made it clear that there will be cases in which a number of options exist. Rather than drafting exact regulations to cover each option, which we believe would be a waste of time, we will consult on those limited cases by putting forward the options. When we have consulted and heard what people have to say, we will draft a particular regulation. In that limited sense, the measure would be "partial".

Lord McCarthy: My Lords, my noble friend Lord Wedderburn is growling a little so I shall pass by that. The Minister seemed to say that the consultation documents would appear on the website only. At least, I did not hear that there would be a sixpenny edition that even my noble friend Lord Gladwin could understand.

Lord Sainsbury of Turville: My Lords, I have said that in all cases the consultation documents will be published on the DTI website and in hard-copy form.

Lord McCarthy: My Lords, I did not hear that. I am going deaf! In that case, although the Minister will not accept our amendment, I am pleased to beg leave to withdraw it.

Amendment, by leave, withdrawn.

Lord Sainsbury of Turville: My Lords, I beg to move that further consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.


4.7 p.m.

Viscount Waverley rose to ask Her Majesty's Government what is the state of the United Kingdom's relations with Kazakhstan.

The noble Viscount said: My Lords, I want to thank all noble Lords for delaying their Recess departure to speak on this important Question.

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Mystery and a heightened realisation of its impending post-independence importance first drew me to central Asia. Later, the Foreign Affairs Select Committee report commented in its regional assessment:

    "The countries covered by our report have been facing traumatic change, which has amounted to nothing less than a revolution in their civil, political and economic structures".

It went on to state that,

    "there are opportunities we would be foolish to spurn",

but it concluded that,

    "more could and should be done to promote Britain's interests, good governance and stability in a region that will be of increasing significance in the years ahead".

Certainly the West's dependence on energy, and so by extension regional stability and security, makes Kazakhstan an important, if not essential, relationship for the United Kingdom. Improving long-term investment opportunities and laying solid foundations for its enhanced role in regional security is mutually beneficial. Yet key figures in Kazakhstan remain to be convinced of the priority the United Kingdom attaches to this bilateral relationship. Please allow me to set the stage.

Central Asia is a crucial competitive energy alternative to Middle Eastern supplies, with Kazakhstan boasting three "super-giant" fields, including the Kashagan field, itself estimated to contain 50 billion barrels, which together suggests that Kazakhstan holds 88 per cent of central Asia's oil wealth. Policy makers beholden to Riyadh and elsewhere can now secure additional energy supply guarantees from Astana.

Restrictions to increased exports do exist, however; inadequate pipelines and port facilities on the one hand and problems of Caspian Sea demarcation on the other. More intractable is Kazakhstan's challenge to the United States to consider the strategic role of Iran as a direct and cost-effective transport route; in other words, to substantiate its claim to support multiple pipeline use.

What of trade potential? Britain is currently the second-largest—but slipping—investor in Kazakhstan. However, difficulties prevail. It is the protection of those investments that exercises business leaders. A balance must be found which safeguards Kazakh interests while creating the necessary climate for participation by foreign investors.

I shall cite three examples: the weakening of the stability clause which protects investors from changes in other legislation; the weakening of the right to seek international arbitration and subsequent enforcement; and the weakening of the protection from nationalisation and consequent valuation of assets. I should have thought that these issues could jeopardise a long-awaited Kazakh application for WTO membership, but I sense that the United States might be pressing DG Moore to fast-track any such application for political and commercial expediency. Such a move would militate against UK interests. Will the Minister stand firm?

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Although a problem for many countries in transition, havoc is constantly wreaked by corruption. It is nevertheless an issue which must be tackled comprehensively if the right conditions for essential long-term investment are to be met. Kazakhstan cannot be proud of its current poor ranking in Transparency International's latest index.

It must be said, however, that much has been done of late to develop the Kazakh legal system, but there remains the problem of lack of uniformity in the interpretation and application of laws. With that in mind, the proposed investment law needs to be clear and unequivocal if targets and objectives are to be achieved.

Conversely, foreign companies have a role to play; they must listen at both government and local level, respect and understand the need for local content and local employment, support education and training and the transfer of technology. In addition, the minimum footprint must be ensured and environmental protection and social development addressed. All these are legitimate aspirations, enhancing prosperity.

Bilateral mechanisms do exist to address many of these issues—for example, the Kazakh British Trade and Industry Council. But that endeavour, alas, is moribund. Perhaps we might be advised of steps being taken by British officials to restart the process.

Regionally, several points arise. It is important not to underestimate the major influx of heroin from post-Taliban Afghanistan. Kazakh co-operation is therefore essential. Can we be brought up to date with developments in the Central Asia drugs initiative? We must take the war against drugs to the front line, not rely solely on consumption control.

Although the security situation has improved, if ever there were a large-scale Islamist upheaval in central Asia, it would require United States and Russian co-operation to maintain stability. My assessment is that the United States is preparing for a long-term presence. Certain reports suggest that Kazakhstan is not entirely free of international terrorist networks, so the US military build-up in the region on the back of the Afghan situation, and prior to a possible Iraq incursion, should ensure a degree of stability. Kazakhstan can help itself, though, by ensuring against internal disquiet that invites terrorism, and by minimising border disputes.

Kazakhstan could play a crucial role in regional security and co-operation to enhance the stability and prosperity of the whole region, and to fight the problems of drugs, extremism, illegal migration and organised crime. There are also a number of major environmental problems with diverse and serious implications for the region's future. An important area for co-operation and conflict avoidance is water sharing. In addition, a constructive Kazkh-Uzbek co-operation would also be helpful. Would the Minister consider adding such matters to her in-tray?

Running on down the list, we find that social and health problems rank high. The growth of HIV and TB is alarming. They must be tackled systematically, and

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soon. Kazakhstan needs to be in the forefront of this fight, with effective public health and education programmes.

Notably, and old friend of Britain's, Mr Adil Akemetov, the recently-departed ambassador to London, has happily surfaced as the Dean of the new Kazakh-British Technical University. The university will have three faculties: Oil and Gas, IT, and Business. This is a prime example of Kazakh good will requiring support. I am advised that a high priority is to encourage British corporate sponsorship.

A political read-out is difficult. The past months have seen upheavals in Astana, changes from those close to the President, and talented people marginalised for adopting opposition postures. Some commentators report that the political one-man machine has worked against the development of properly functioning political institutions, and against the growth of civil society—that repressesion is widely prevalent. Kazakhs may soon recognise that they have never benefited, for example, from oil wealth and create instability. None of this should diminish, however, the advances made in stability, nuclear disarmament, human rights and freedom of speech, particularly when compared with neighbouring states. The challenge is to sustain and enhance. In addition, Kazakhstan has become a responsible world community member, facilitating dialogue, as President Putin's initiative next week with India and Pakistan shows.

A transformation to immediate democracy was never going to happen immediately as the Soviet legacy of authoritarian leadership was too entrenched. I sense, however, a stirring in the bulrushes—opposition endeavours gaining in effectiveness; and, if left unfettered, could conceivably surprise in the currently earmarked 2006 presidential elections. Dynastic politics may yet prevail, however, either through further constitutional change or the passing of the mantle.

Whoever does prevail, I believe that the message should be that the world post 9/11 will never again marginalise regional issues, and that the new era of leaders will have to adopt qualities that foster a pragmatic strategic partnership. Surely the litmus test must be the extent to which state affairs are governed by self-interest or excessive expediency. What levels of accountability exist? And are the interests of the state and the majority of its citizens best served by current arrangements? But it is never as easy as one might wish to apply Western standards.

Time dictates that I wind up. I must just mention though the harsh way that the independent media are increasingly falling victim to pressure from the authorities; and that a healthy degree of press freedom and political debate would win Kazakhstan many points in the international arena; but that the recently held Eurasia Media Forum was a successful first for the region.

I make two observations on our bilateral endeavours—the duty of our representative on the ground is in great part to impact decision-makers, and

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those such as parliamentary committee chairmen who are closer to the process than we are; in other words, knocking on doors. We are not doing that effectively. Our efforts have been wanton and need to be reconsidered. In that spirit, the United Kingdom must ensure greater high-level political attention to Kazakhstan. The Minister, I know, certainly does her bit, but the record of the Government generally is not good in this area. There is no place for complacency in bilaterals and we are simply not matching French, German and American Cabinet Ministers visiting the Caspian. Even DfID's country programme is comparatively weak given the high percentage of poverty that regrettably exists.

It will be of interest that I have recently accepted, on behalf of the Kazakh-British Parliamentary Group, an invitation to travel to the Kazakh Parliament in Astana. That will present a welcome opportunity to interact with parliamentary colleagues.

I will end on this note. Kazakhstan's economic, civil and political well-being is an imperative. An economically stable Kazakhstan, in a region of increasing strategic significance, is of the utmost importance to us and to the world at large. We must play our part in helping to achieve those vital goals. I believe that the United Kingdom, with its experience and expertise, is well qualified to assist.

4.21 p.m.

Lord Moynihan: My Lords, I congratulate the noble Viscount, Lord Waverley, on securing the debate. Central Asia is a critically important region whose strategic significance western policy has not always fully appreciated. Within this region Kazakhstan is a key ally, particularly since the terrible events of September 11th.

The five newly independent states of central Asia are still relatively unknown to us in the west. We have had a mere 10 years to adapt to the emergence of these states following the collapse of the Soviet Union in 1991. Prior to that, Moscow's iron grip on its territory had ensured that few westerners were familiar with this region, which had effectively been closed to the world for decades. Suddenly, in 1991, major reserves of natural resources and vital strategic assets were no longer controlled by Moscow but by unknown and unfamiliar new governments thousands of miles away, albeit tied by the inherited invisible threads of control by the Muscovite economic, security and political apparatus. Over the past decade, Kazakhstan and its central Asian neighbours have sought to establish themselves as independent states while at the same time coping with revolutionary changes to their civil, political, social and economic structures.

In my remarks today, I should like to focus on September 11th, both in terms of the effect that it has had on Kazakhstan and its neighbours and in terms of the shift in international geopolitics and strategic considerations which it has necessitated, not only for the stability of the region but for international security as a whole.

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Far from a remote backwater, the states of central Asia have global strategic significance. Geopolitically, the region is positioned as a natural crossroads between East and West. Economically, the rich hydrocarbon and mineral reserves mean that the states of central Asia have the potential to become a significant supplier of energy to the global economy and to diversify the supply of vital raw materials. There is thus a strong interest in the promotion of peace and regional stability and in the resolution of long-standing conflicts, without which commercial engagement and investment in the region will always be limited.

Kazakhstan has perhaps achieved more in this respect than its neighbours in the region, but progress has been slow and hesitant. Kazakhstan is struggling to overcome its past as a central Asian "empty quarter". Bear in mind that we are talking about a country that is territorially two- thirds the size of the United States but with a population of only 16 million people. As well as being the former Soviet Union's "mine", Kazakhstan produced 95 per cent of the FSU's phosphorous, 90 per cent of its chrome, 70 per cent of its lead and zinc and 50 per cent of its silver.

Kazakhstan faces daunting challenges on all fronts. It faces social and environmental challenges as well as political and economic ones. Economically, it faces a dilapidated infrastructure, rising unemployment and high inflation. Socially, it faces total upheaval from Soviet society, when Russians exercised influence and control and Kazakhs were more commonly found in the lower social, political and economic strata. The converse applies today. Moreover, the country faces entrenched poverty, prostitution, drug addiction and increasingly high infection rates of TB and HIV/AIDS. Environmentally, it faces the legacy of the contamination caused by Soviet era nuclear tests and the water mismanagement which has resulted in the shrinking of the Aral Sea. Politically, although no means the worst offender in central Asia, Kazakhstan's performance on human rights, political freedom and free speech since independence, has been patchy at best, and the situation is worsening.

Despite denials of the return of the "Great Game", in which external powers compete for influence in the region for the sole purpose of furthering their own ends, the politics and economics of the region remain disproportionately affected by outside powers: Russia, Turkey, Iran, China, the European Union, the UK and the US. It remains to be seen whether the shifts in the power balance seen since September 11th will be beneficial to the region or not.

The geopolitics of central Asia must now be seen through the prism of September 11th. We have realised belatedly that issues such as who governs in Afghanistan, bordering as it does Iran, Pakistan, Tajikistan, Turkmenistan and Uzbekistan, are not matters of mere local politics. Two years ago, the journal Foreign Affairs published an article by Ahmed Rashid. He argued that civil war in Afghanistan between the Northern Alliance and the Taliban was polarising the whole central Asian and middle eastern region, causing enormous disruption in the region.

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When the Cold War ended, the West did not develop a new strategic framework for the area. Instead, into the political vacuum left by 20 years of war and the collapse of stable government, marched,

    "a new generation of violent fundamentalists, nurtured and inspired by the Taliban's unique Islamist model".

The same could happen in other countries in the region.

The biggest change is the extension of US influence in the region and its military presence in central Asia. Washington is now viewing with increasing interest the emergence of new regional forces, such as the Shanghai Co-operation Organisation, dubbed the "Shanghai Six"—a union of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, formed to safeguard regional security and to fight Islamic terrorism. The development of a relationship between the West and this new political entity is a major undertaking. We in the UK will need to be engaged in this task too. The Minister will no doubt comment on the progress being made in this respect.

There is no doubt that US-Russian relations will be the key to the long-term dynamic that established itself in the aftermath of September 11th. A tremendous surface-warming has taken place in relations between the two administrations since September 11th.

Nevertheless, the Kremlin is uneasy about future US objectives in a region that Russia has long regarded as its own backyard. For centuries, Russia has dominated central Asia and the Caucasus, all the while warning Western powers to keep their distance. But the picture since September 11th has changed out of all recognition and the configurations of the geopolitical landscape have seen dramatic shifts. The United States now views these remote republics as important allies in the war against terrorism. That is even more astonishing when it is remembered that, just a decade ago, the five states of the region were part of the USSR's economic and military might.

There is hope that this rapprochement will be the last requiem to the Cold War. This is an opportunity to make post-Cold War Russia, with its psychological need to be accepted as a fully European country, feel as though it is part of the West's family of nations, not threatened by them. President Putin continues to encounter opposition from the military and others in the Russian élite, but to date, his commanding political power has enabled him to prevail.

I believe that Kazakhstan's size, its position between Russia and its less stable southern neighbours, and its potential economic wealth—despite its reputation for corruption—makes it the key to stability in central Asia. This is a view which President Nazarbayev seemed to share. He has said that Kazakhstan, given its geographical position and ethnic composition, should be oriented to both East and West. He has floated the idea of a Eurasian union, and is keen to cultivate a good relationship with the West, particularly in view of its interest in Kazhakh energy resources. He has made it clear that he wants a relationship with the West which is helpful both to Kazakhstan and to regional security, but which

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balances Russian interests. In turn, we have looked to President Nazarbayev as an asset and a bulwark of stability in the region. There is no doubt that he has many achievements in this respect.

Sadly, the Government have cracked down on all opposition so hard that, in spite of Kazakhstan's pivotal role in the US counter-terrorist strategy in the region, Washington has been forced to take issue with the Kazakh Government. The president's reception in Washington last December was far more lukewarm than he had expected.

What action have our Government taken to make it clear to President Nazarbayev that Kazakhstan cannot join the West while it intimidates even the mildest of its critics and seeks total control, as the noble Viscount mentioned, over the country's already inhibited newspapers and broadcast media? While the situation is worse in many of Kazakhstan's neighbours, President Nazarbayev has a fickle record on upholding human rights and democratic principles. The 1999 election was a case in point. The OSCE concluded that the election was,

    "severely marred by widespread, pervasive and illegal interference by executive authorities and by a lack of transparency".

Since then, President Nazarbayev has progressively gathered ever more executive power into his own hands and has gradually curtailed the freedoms that the post-independence constitution seemed to guarantee.

While September 11th gave President Nazarbayev the opportunity he so desired to establish Kazakhstan as an indispensable regional player and Western ally, Kazakhstan's heightened international profile likewise gives reformers the opportunity to make public attacks on endemic political corruption and to draw international attention to the abuses resulting from the monopoly of political power held by President Nazarbayev, his family and a closed and immensely wealthy élite.

In recent months, President Nazarbayev seems to have abandoned democratic reforms altogether and his decision-making process has become erratic. The so-called Zhakiyanov affair has been completely mishandled.

The situation is grave. There are many forces outside the country who, using the popular discontent inside Kazakhstan, could easily thwart all endeavours to maintain stability. I truly believe that we must use our powers of persuasion on President Nazarbayev to act in the interests of the entire country. I hope that the Minister will tell us what pressure the Government are exerting to persuade him to return to the path of reform and progress. I am all too well aware that it is easy to demand improvements in human rights and democratisation in a high-handed and moralising manner, but it is important to know what areas the Government have identified in which they can take effective action to assist in the development of good governance. For example, what action are they taking to fund and assist all organisations in Kazakhstan

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seeking to promote a properly functioning civil society where there is freedom of expression and freedom of the media?

As I have argued, for a number of compelling reasons it is in our shared interests to help realise the full potential of Kazakhstan as a major regional player and as a bridge between East and West. There is a wish in Kazakhstan to develop stronger bilateral relations with the UK, not least because of our reputation as a country with global influence and prestige. While commercial relationships are in many ways the most dynamic feature of the UK's bilateral relationship with Kazakhstan, we cannot treat trade with Kazakhstan in isolation from the wider strategic and geopolitical picture. Real progress towards democracy and full respect for human rights are as important as the sound economic development of the region. Political freedom walks hand in hand with economic freedom. Both are required to attract the international trade and prosperity that will unlock Kazakhstan's economic potential. The mere possession of energy resources alone is not enough to guarantee prosperity. That is why the rule of law is important to companies doing business in these markets. It is difficult to achieve sustainable economic development in the absence of democratic principles and respect for human rights and the rule of law. We need long-term investment in Kazakhstan's future, with tangible benefits for all the people in Kazakhstan, not just for a small, wealthy élite.

As the second largest investor in Kazakhstan, and the largest European investor, the UK has a key role to play in that respect, to the mutual benefit of both Britain and Kazakhstan.

Kazakhstan has a pivotal role to play. For the reasons that I have put forward, we have an interest in helping Kazakhstan to develop its full potential and to build economic prosperity, stability and regional security. It is incumbent on us to help Kazakhstan to establish true democracy on many levels, not least because of its geopolitical significance. However, there is also a more pragmatic reason. Let us not forget that Kazakhstan could be a major provider of fossil fuels for our children and our grandchildren. On every level then, by helping Kazakhstan towards a better future, we are securing a better future for ourselves.

4.35 p.m.

Lord Wallace of Saltaire: My Lords, it is difficult not to feel some sympathy with Her Majesty's Government on the proliferation of new countries and demands that more ministerial visits should be made. In 1990, when I had just moved to the University of Oxford, I went to talk to some of the Foreign Office planners, but before I could ask my questions, they asked me whether there was anyone at Oxford who knew anything about central Asia. All of us have had to learn a lot since then. I also remember the Foreign Office's discussions, after years of cutting overseas posts and personnel, about where to find the additional staff and money to staff new embassies in these central Asian countries. Clearly there are strains on British attention and resources. That is one of the

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reasons why it makes sense to ensure the closest possible co-operation between Britain and other EU members states in our approach to the region.

We should use the EU as far as we can—we have co-operated particularly closely with the Germans and the French—and co-operate as far as we can with the Americans, with whom we sadly differ in various approaches to the region and particularly to Kazakhstan. We should be investing in training and educating the next generation. I was glad to see in my briefing the numbers of Kazakhs on Chevening scholarships coming to this country. The Chevening programme is extremely valuable, and we should be promoting such programmes within the country and the region as far as possible.

We all realise that Kazakhstan is a difficult country to deal with. The level of corruption among the president's family circle and the authoritarian nature of President Nazarbayev's rule pose very real problems for us. Kazakhstan's oil has increased its importance in terms of American geopolitical strategy. I have very considerable doubts, however, about the current geopolitical fashion for central Asia in Washington. Various articles suggest that the United States believes that it can switch from dependence on Middle Eastern oil imports to central Asian oil imports, exported in pipelines which somehow avoid both Russia and Iran. The articles suggest that the United States will therefore be able to forget about the Kyoto Protocol and continue importing more oil. As allies of the United States, the British should be telling the Americans that central Asian oil supplies do not allow them to forget about oil energy conservation. There is not a quick fix in this respect.

For Kazakhstan, oil is clearly both a blessing and a curse. We see that it has all sorts of problems in terms of domestic corruption, not to mention reports of substantial sums diverted to offshore financial centres. As I read the rhetoric in the American press and its criticism of Saudi Arabia for failing to promote democracy—although without paying similar attention to the promotion of democracy in Kazakhstan and the central Asian region—I am concerned about the need to ensure that our approach to Kazakhstan is both careful and conditional.

The Kazakh Government themselves clearly wish to build on the anti-terrorist campaign, to become as close as possible an ally of the West albeit in an unconditional fashion. We are all aware that Kazakhstan has to be seen as part of the central Asian region and as linked to the continuing problems in Afghanistan. I remember some time ago hearing someone from Europol talk about the heroin route from Afghanistan to Western Europe which passes across Kazakhstan. We were assured by Russians present that neither the Russians nor the Kazakhs managed to control the border between Kazakhstan and Russia. It is a large empty region, as has already been said, with a range of problems such as people-smuggling. Chinese are smuggled across Kazakhstan which now has a substantial drugs problem of its own, and increasing HIV and AIDS resulting from that. It also suffers from nuclear contamination.

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The noble Viscount, Lord Waverley, suggested that the volume of British foreign direct investment had declined. However, I note that a number of British companies feel that it is not an attractive country in which to invest. As we have already learned in Russia, unless you have a clear domestic, legal and financial framework, you will not attract foreign direct investment. The kind of tragedy that has already happened in Angola and in some other oil-rich countries must not be allowed to happen in Kazakhstan as far as we can avoid it.

What should our interests be in Kazakhstan? I suggest to the Minister that we should have as active an interest as possible without killing off our Foreign Office team by insisting that they travel three times a week round the world; that British interests should clearly be rooted in a European framework and a European strategy; that it has to be a strategy directed towards the region as a whole; and that it has as far as possible to be co-ordinated with the United States. That requires us to be critical of the current thrust of US policy towards the region which is dominated by the Pentagon and by the oil interest and has downgraded questions about the solidarity of the legal framework in the country and the strength of the social and political fabric. In our approach to the Government of Kazakhstan, we clearly therefore should offer critical support and should pursue conditional relations—a close relationship but not an uncritical one.

4.42 p.m.

Lord Howell of Guildford: My Lords, this is indeed a good moment to focus on the former component parts of the Soviet Union. I congratulate the noble Viscount on focusing our minds on these matters.

In a week when Russia has signed up to new organisational arrangements with NATO of a very positive kind, this is the time to remember—that is fairly hard for people of my generation to grasp—that those aspects of the Cold War are over, even if new threats are developing, and that we have reached a totally historic moment in which some of the darker dreams of the 20th century begin to disappear. The Russian leadership shows genuine signs of wanting to co-operate at every level with the world community. Indeed, Mr Putin's intervention only in the past few days in suggesting he brings together the Indian and Pakistani leaders in Kazakhstan is another example of that.

We are looking at a new map. I am sure that my noble friend Lord Moynihan is right that the events of 11th September last changed everything or changed perceptions throughout world politics. It can, of course, be argued that long before 9/11 it was perfectly obvious that the terrorist and fundamentalist organisations, often based in Afghanistan and in related areas, were brewing up for a major attack on the United States. With hindsight, a good many people have claimed that they could see that coming. Nevertheless, when it came it was so awful and so visible that everyone's views have been refocused.

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Before 9/11 there was a pattern building up in central Asia—a line up—which was full of potential danger. The United States, the Saudis and Pakistan were, on the whole, on the side of the Taliban. Up to about two years ago there was strong support for the Taliban on the part of various American lobbies. That of course evaporated mainly, I believe, when America perceived what a viciously cruel, anti-feminist and narrow medieval organisation the Taliban was.

On the whole, that was the line-up on one side. On the other side the line-up consisted of Russia, Iran, Kazakhstan, Kyrgyzstan, Tajikistan and other related countries. That was the pattern that was emerging before 9/11 changed all the pieces on the board.

Also emerging at that time—these factors are still in place—were the new dictates of oil politics and the question of who would benefit from the colossal reserves of the Caspian Sea basin, which the noble Viscount, Lord Waverley, rightly mentioned. All along, Russia has been anxious—this aspect may not have changed so much—that oil that is brought to the surface, either offshore in the Caspian or onshore in the colossal reserves of the fields in Kazakhstan, should be moved through friendly states: through Russia and parts of the former Soviet Union or the existing Russian Federation. It wanted oil to be moved through Chechnya—that leads us into another issue, which we have not discussed today. That explains some of the agonies, difficulties and obsessions surrounding the question of the Chechnya rebellion and the Chechnya war.

On the other hand, the US was all along very uneasy about too much oil moving through those regions. It wanted the line that has now been built from Baku to Ceyhan in Turkey to be the main source. Before 9/11, the US-backed oil companies were seriously considering the development of lines through Afghanistan. That project, needless to say, has fallen by the wayside, at least for the moment.

That was all before 9/11. We saw the role of Kazakhstan in that context rather differently. Then came the horrors of that morning. As it happens, this very day the last bits of rubble and steel girders are being cleared from the site of the World Trade Centre in New York. The global rubble, as it were—the global consequences, dereliction and dangers—remains scattered all around the globe. The picture is different; now we have a new line-up. We are, in a sense, all against Al'Qaeda and all determined to crush the final pockets of the Taliban. We are not quite sure whether that will be done successfully; many of those pockets may persist.

Kazakhstan is a colossal country, as my noble friend Lord Moynihan reminded us. He said that it was two-thirds the size of America; my figure is that it is five times the size of France. Either way, the country is pretty large. It is even more central in the new pattern. It becomes essential for that new pattern of alliances to try to glue itself together. There are still some very odd alignments. For example, Iran is still against the Taliban or Al'Qaeda and is supporting the forces that

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it supported before 9/11, but it is still being denounced as part of the axis of evil by the United States. In an odd sort of way, they have been pushed by events on to the same side.

In Kazakhstan, there is the continuing question of the colossal oil reserves. The noble Viscount, Lord Waverley, trailed the idea of the Caspian Sea basin and the vast oil fields, such as the Tengiz field in Kazakhstan, providing an alternative to cheap Middle Eastern oil. That is, for the moment, no more than a gleam in the eye. The truth is that Middle Eastern oil is very cheap and is still flowing. Of course, one can build up nightmares and dramas of extremism taking over throughout the Gulf, but that is not the immediate prospect. The cost of central Asian oil is on average much higher—my figure is that it is as much as 18 dollars a barrel, which is nearly prohibitively high in present market conditions, compared with 66 cents for the oil that squirts out of the ground in Kuwait or Saudi Arabia.

Therefore, while it is possible that in changed circumstances the world will rely far more on the oil and gas reserves of central Asia, and while some countries, including Russia, already rely on them, the prospect of developing the Caspian Sea basin and the Tengiz fuel line in Kazakhstan as real alternative sources of energy is, I believe, remote.

However, that does not get in the way of the fact that oil politics is now being played with great vigour in all these regions. The problem for Kazakhstan has been in getting the oil out. The pipeline that goes through Russia to Novorossiysk will obviously help. As noble Lords have observed, it is bringing considerable prosperity to some parts of Kazakhstan society and making some people extremely rich.

But all that has to be set beside the continuing and worrying picture of weakness and—to use the word of my noble friend Lord Moynihan—dilapidation in parts of Kazakh society. There is high unemployment, and, as the noble Lord, Lord Wallace, mentioned, there is a drugs problem. Another point, which perhaps I view too strongly, is the shrinking of the Aral Sea. The disappearance of a gigantic feature of nature thanks to hideous man-made incompetence is one of the most awful burdens that Kazakhstan must shoulder. That is one of its many difficulties.

There is also unease about the enormous accumulation of power in the hands of President Nazarbayev and his family. There is a feeling that, at the very moment he is supposed to be lining up Kazakhstan with western interests and the global campaign against terrorism, he is apparently using methods which do not accord with the core values and standards which the West believes it is trying to defend and protect.

Nevertheless, there are successes. The economy, which is market-based, has been liberalised, and that must be on the plus side. Of course, not only a free economy but a free political system are needed to make the whole pattern develop in a balanced and successful way. We are not there yet. But these could be the prospects for the future. The excellent relations which

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Britain has had with Kazakhstan can be developed further provided that we use our influence in the right way.

I believe that we shall hear very much more about this colossal nation and its neighbours. We shall probably hear most about them in debates in your Lordships' House. The newspapers and the media have only a passing interest in these issues until they spring into the front line. Afghanistan did not receive much mention but then was suddenly on every front page all day, every day.

In the meantime, I believe that it is valuable that your Lordships' House, prompted in this case by the noble Viscount, Lord Waverley, should focus its attention on these matters. Perhaps when the next crisis arises in central Asia, demanding full attention by the media, your Lordships' justified slogan will be, "You heard it here first".

4.53 p.m.

Baroness Symons of Vernham Dean: My Lords, I, too, thank the noble Viscount, Lord Waverley, for providing the opportunity to discuss the United Kingdom's relationship with Kazakhstan. Of course, as the noble Viscount indicated, it is an important country. For the benefit of both sides, it is vital that we get that relationship right. I believe that we are working very hard in doing just that.

As the noble Lord, Lord Moynihan, reminded us, it is some 10 years since we established diplomatic relations with Kazakhstan. That country's achievements since independence have, indeed, been considerable, and we should not set them in any other context. It has established and maintained internal cohesion and stability. That is no mean feat in a country which is as large as your Lordships have described and which has a diverse ethnic composition. It has disposed of nuclear weapons—a substantial legacy to global security—and forged constructive relationships with its big neighbours, China and Russia.

Kazakhstan has proved a serious and reliable United Nations partner and has consistently taken a responsible and creative stand on matters of international importance such as Afghanistan, as the noble Lord, Lord Howell, indicated. Internally, it is developing institutional structures including an ambitious legislative programme. It is creating a young, well educated and technocratic administration.

However, the successes of the past 10 years inevitably highlight the areas where more needs to be done. The noble Lord, Lord Howell, is right to remind the House about the enormity of the oil reserves in Kazakhstan, but the economy is still too highly reliant on the energy sector and there have been inadequate macro-economic reforms. There is too much corruption and there is too little transparency. Kazakhstan has yet to strike the right balance on attracting foreign investments. That was a point made strongly and cogently by the noble Lord, Lord Moynihan. It has yet to develop a modern political

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structure that meets adequately the aspirations of the people of Kazakhastan and to respect the fundamental rights of its own citizens.

Of course, we would like to see a Kazakhstan that is prosperous and secure. As the noble Lord, Lord Moynihan, indicated, with its great size and vast resources, Kazakhstan has the potential to be a real engine of growth for the entire region, benefiting not just central Asia, but southern Russia and western China too.

I agree with a great deal of what the noble Lord, Lord Wallace of Saltaire, said about Kazakhstan's efforts on security. The transformation of Kazakhstan will also underpin regional security and help to counter the tide of instability that has emanated from Afghanistan, on which many noble Lords have concentrated. That tide of insecurity has brought with it drugs, terrorism and illegal migration. The United Kingdom can be directly affected by what I may call the backwash from that kind of tide. That is why it is enormously important for us to develop a strategic relationship with Kazakhstan.

One characteristic of the contributions that we have heard from your Lordships is a recognition that Kazakhstan is at a crossroads. There is a strong sense that it needs to take some bold decisions. If it gets those decisions wrong, Kazakhstan runs a real risk of not fulfilling the enormous potential to which so many noble Lords have referred.

One of the key decisions concerns the foreign investment climate. The noble Viscount, Lord Waverley, concentrated somewhat on the issues concerning trade and investment. Kazakhstan has already had significant foreign investment, mostly concentrated in the energy sector. But the really big money for really big projects is yet to be committed. Although Kazahstan energy opportunities are, as has been said, enormous, they are very expensive to carry out, as the noble Lord, Lord Howell, told us and they carry a substantial risk. Against that background, Kazakhstan competes with other countries in the global market for limited capital. It simply has to make itself as attractive as possible if it is to receive a large-scale investment commitment, a point stressed by the noble Lord, Lord Wallace of Saltaire. Without such a commitment Kazakhstan will not achieve the critical mass that it requires to take off and its economic potential will risk remaining unrealised for generations.

That take-off equally depends on Kazakhstan ensuring that it internalises the benefit of foreign investment as much as possible through the transfer of skills, through building local capacity and infrastructure, and through generating real local jobs. If it is to work at all, foreign investment needs to take place, as does all successful foreign investment, on a win-win basis. That is good for the investor and good for Kazakhstan.

However, currently Kazakhstan runs a real risk of getting that balance wrong. Perhaps that is because the country is bolstered by a sense of false security, built on strong oil prices. It has been sending the wrong

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signals to the investment community, including through a proposed investment law that curtails the rights of foreign investors through ambiguity over the sanctity of contracts and through lack of progress on transparency. As the noble Viscount, Lord Waverley, and the noble Lord, Lord Moynihan, pointed out, corruption, lack of clarity on rules and procedures and an opaque and often obstructive bureaucracy also seriously inhibit investors, particularly smaller businesses, whose engagement is also vital to Kazakhstan.

We and other partners will continue to pursue vigorously an honest dialogue on these issues with Kazakhstan. As the noble Viscount urged us to do, we shall keep listening in a spirit of partnership. We also welcome the efforts of the Kazakh-British Trade and Industrial Council to address these problems jointly. But the Kazakh Government have yet to show real commitment to this process by nominating a permanent co-chairman. That is an important point which the noble Viscount may wish to note.

British companies like British Gas, Shell and BAe Systems can make a major contribution to Kazakhstan's development and security, but only if the conditions are right for the companies to do so.

As regards joining the WTO, we would wish to see Kazakhstan go forward, but it must be compliant with WTO issues and measures otherwise it will not get the support of other WTO members to join. We are anxious that Kazakhstan does more to diversify the economy and to avoid over-reliance on the energy sector. I agree with much of what the noble Lord, Lord Moynihan, said on this. The key will be wide and transparent use of oil revenues, which bring benefits, without causing economic distortion.

The domestic banking sector also needs development if it is adequately to underpin the kind of economic transformation which many of your Lordships have indicated they would like to see. Although Kazakhstan currently believes that it does not need the IMF, having paid off its loans, we believe that it should be developing a dialogue. The IMF is a valuable potential partner in economic reform and not just an agency for lending money. Addressing poverty and health issues is obviously also crucially important.

As many of your Lordships have indicated, the poor must not be left behind. Although the levels of HIV/AIDS and TB are low compared with many developing countries, they could rise very sharply. Many noble Lords have looked at the issue of drugs in Kazakhstan and may wish to note that Her Majesty's Government contribute £250,000 at the moment towards equipment and training to the central Asian governments to help fight in the war against drug trafficking. That is obviously a very well worthwhile initiative. It is time for the Kazakh Government to take these very important social issues seriously if they are to move forward.

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Perhaps I may make one or two other points on the domestic scene in Kazakhstan. To succeed as a modern state it needs to have a modern, inclusive political system which derives its legitimacy from the people, which responds to their needs and aspirations and which respects and protects their fundamental rights in exactly the way that the noble Lord, Lord Moynihan, indicated. It is only from such a base that the right long-term decisions on government and reforms can be made.

It is time now for the Kazakh Government to move forward positively in this respect. Key indicators of their desire to do what is best for Kazakhstan will include how they develop the political pluralism of which the noble Lord, Lord Moynihan, spoke; how they handle future parliamentary and presidential elections and how they allow the development of a free and responsible media. We and our European colleagues are concerned about the most recent attacks on the independent media in Kazakhstan.

The noble Lord, Lord Moynihan, asked how the United Kingdom can try to strengthen and develop the reform process. We have put substantial resources into strengthening the bilateral relationship. Our embassy in Almaty has been strengthened with a defence attaché and will get additional UK-based staff very shortly. The British Council has been helping to establish a new Kazakh-British technical university in Almaty to which the noble Viscount referred, and there is an active programme there, too. We use every opportunity to stress to the Kazakh Government the importance of democratic, political reform and respect for human rights. We encourage the development of a legitimate opposition as part of the democratic process. I hope that noble Lords will note that we have contact with a wide range of political views in the country. The MoD's Outreach programme is focused on the English language teaching for officers and through new learning and access to the English-speaking world of ideas we are developing a new capacity for reform.

I assure your Lordships that the Government realise the importance of maintaining high-level bilateral contacts. I hope that the noble Viscount will be pleased to know that I myself look forward to visiting Kazakhstan at an early opportunity, as does the Foreign Secretary whose planned visit to the region in November had to be postponed in the wake of September 11th.

Obviously, the Government would welcome more inter-parliamentary contact. I was very pleased to learn of the noble Viscount's plans to visit the country shortly and look forward to his reporting back.

On the issue of increased activity in central Asia, the European Union is pursuing enhanced political dialogue with all central Asian states, including Kazakhstan, primarily through its partnership and co-operation agreement, as I am sure that the noble Lord, Lord Wallace of Saltaire, is aware. The EU has decided

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to increase assistance to the region and to target poverty reduction, conflict prevention and border management—all enormously important issues.

This has been a very worthwhile discussion about our future relationship. There is much to build on. There is much that has been achieved in Kazakhstan, but there is still a great deal of work to be put into the internal mechanisms in that country and in creating the right climate for the investment and prosperity which is so vital to move the country forward.

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The United Kingdom will continue to work with Kazakhstan to get what I described as the "win-win" relationship right. We shall work with our partners in the European Union, the EBRD, the international financial institutions and the OSCE, because, if it can get it right, Kazakhstan has a great future.

        House adjourned at seven minutes past five o'clock until Monday 10th June at half-past two o'clock.

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